India Looking To Buttress Ailing Airline Industry

An investigative panel convened by the India government to address problems affecting the domestic airline industry is suggesting an overhaul of the country’s tax code and relaxing foreign ownership restrictions.

The recommendations from this inter-ministerial working group come as Civil Aviation Minister Ajit Singh declares that the domestic air transport system, with the exception of low-cost carrier IndiGo Airlines, is operating at a loss.

These losses, according to Singh, have amounted to 190 billion rupees (US$3.6 billion) between 2008 and 2011. This year will add another 100 billion rupees to that total loss, Singh told Parliament May 3.

The loss estimates were calculated on the basis of returns filed by all the domestic airlines with the aviation regulator Directorate General of Civil Aviation (DGCA).

India’s civil aviation industry is plagued by rising jet fuel prices and high sales tax on this fuel, but Singh also notes that “there is no proposal to provide incentives to private airlines.”

The government intends to change that with the ministerial working group, organized under the auspices of the Ministry of Civil Aviation, to identify the cause of these perpetual losses and suggest solutions.

The working group, which held its first meeting on Dec. 21, has recommended the rationalization of value added tax on aviation turbine fuel (ATF) and allowing airlines to import ATF directly for their own consumption. It also recommended permission for foreign airlines to invest in Indian carriers and revision of fare rules to enable airlines to cover their operating costs.

Singh notes that the airline losses were incurred despite a 17-18% rise in passenger traffic in the country in the same period.

“According to an assessment of the overall outlook of the sector, the fleet of the commercial airlines is expected to touch approximately 1,000 aircraft in 2020. However, the projected number of new aircraft required in the next 10 years would depend upon various factors, including, inter-alia, growth of passenger traffic, growth rate of GDP, foreign tourist arrivals, Index of Industrial Production and prospects of the growth of other modes of transport,” the minister adds.

Singh also says the Ministry of Civil Aviation has proposed formation of a Civil Aviation Aerospace Promotion Advisory Council that will include members from the regulatory agencies and the aerospace industry.

The council would promote aerospace manufacturing activities, review the national civil aeronautics policy, review the regulatory framework and recommend medium- and long-term measures for promotion of the civil aeronautics industry. “It will help in identifying areas for development of manufacturing technology and for indigenization of aircraft parts for Indian and global markets,” says Singh.

The minister also notes that the country’s aircraft maintenance, repair and overhaul (MRO) capacity is lacking. “Air India and Jet Airways have their own hanger facilities for maintenance. There are also MROs available in India for providing maintenance facilities to aircraft … However, the existing facilities are not able to fully meet the requirements of the airlines. As a result, most of the airlines have to send their aircraft to foreign maintenance organizations,” he says.